Microeconomics Ch 13-16 Review

What is the marginal product of the first worker?

300 units

What is total output when 1 worker is hired?

30

Katya owns a math-tutoring business. Her accountant most likely includes which of the following costs on her financial statements?
(i) workbooks containing practice problems
(ii) rent for the storefront
(iii) wages Katya could earn as a bookkeeper
(iv) interest that Katya’s money was earning before she spent her savings to set up the tutoring business

(i) and (ii) only

Gwen has decided to start her own photography studio. To purchase the necessary equipment, Gwen withdrew $2,000 from her savings account, which was earning 3% interest, and borrowed an additional $4,000 from the bank at an interest rate of 7%. What is Gwen's annual opportunity cost of the financial capital that has been invested in the business?

$340

The Three Amigo’s company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog bed was sold for a price of $65. The Three Amigo’s total costs are

$25,000

If a production function shows declining marginal product of an input as the quantity of the input increases, then the production function exhibits

decreasing marginal product.

Which of the following is an example of an implicit cost?
(i) the owner of a firm forgoing an opportunity to earn a large salary working for a Wall Street brokerage firm
(ii) interest paid on the firm's debt
(iii) rent paid by the firm to lease office space
(iii) rent paid by the firm to lease office space

(i) only

Billy’s Bean Bag Emporium produced 300 bean bag chairs but sold only 275 of the units it produced. The average cost of production for each unit of output produced was $100. The price for each of the 275 units sold was $95. Total profit for Billy’s Bean Bag Emporium would be

-$3,875

If the firm can sell its output for $1 per unit, what is the profit-maximizing level of output?

230 units

Carol Anne makes candles. If she charges $20 for each candle, her total revenue will be

$500 if she sells 25 candles

Economists normally assume that the goal of a firm is to
(i) sell as much of its product as possible.
(ii) set the price of the product as high as possible.
(iii) maximize profit.

(iii) only

The amount of money that a firm pays to buy inputs is called

total cost

When adding another unit of labor leads to an increase in output that is smaller than the increases in output that resulted from adding previous units of labor, the firm is experiencing

diminishing marginal product

The graph illustrates a typical

total-cost curve

An example of an explicit cost of production would be the

lease payments for the land on which a firm's factory stands

Suppose a firm operating in a competitive market has the following cost curves. In the short run, if the market price is P4, individual firms in a competitive industry will earn

zero profits

Suppose that a firm in a competitive market faces the following prices and costs. In order to maximize profits, the firm should stop producing after it makes the

fifth unit

Suppose a competitive market is comprised of firms that face identical cost curves. The firms experience an increase in demand that results in positive profits for the firms. Which of the following
events are then most likely to occur?
(i) New firms will enter the market.
(ii) In the short run, price will rise; in the long run, price will rise further.
(iii) In the long run, all firms will be producing at their efficient scale.

(i) and (iii) only

Assume that the market starts in equilibrium at point W in panel (b). An increase in demand from D0 to D1 will result in

an eventual increase in the number of firms in the market and a new long-run

Roger owns a small health store that sells vitamins in a perfectly competitive market. If vitamins sell for $12 per bottle and the average total cost per bottle is $11.50 at the profit-maximizing output level, then in the long run

more firms will enter the market

A competitive market is in long-run equilibrium. If demand increases, we can be certain that price will

rise in the short run. Some firms will enter the industry. Price will then fall to reach the new long-run equilibrium.

In the short run, a market consists of 100 identical firms. The market price is $6, and the total cost to each firm of producing various levels of output is given in the table below. What will total quantity supplied be in the market?

200 units

Suppose a firm operating in a competitive market has the following cost curves. When price rises from P2 to P3, the firm finds that

expanding output to Q4 would leave the firm with losses.

When firms in a competitive market have different costs, it is likely that

some firms will earn positive economic profits in the long run.

A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition.
As a result of the increase in the demand for tomatoes, we would predict that in the short run that the

price of tomatoes would rise.

In a competitive market the current price is $5. The typical firm in the market has ATC = $5.00 and AVC = $4.50.

The firm will earn zero profits in both the short run and long run.

Suppose a firm in a competitive market has the following cost curves. In the short run, if the market price is higher than P4 but less than P6, individual firms in a competitive industry will earn

positive profits

A firm in a competitive market has the following cost structure. If the firm's fixed cost of production is $3, and the market price is $10, how many units should the firm produce to maximize profit?

3 units

Suppose that a firm in a competitive market faces the following prices and costs. Marginal revenue equals marginal cost when the firm produces

5 units

The table represents a demand curve faced by a firm in a competitive market. For this firm, the price of the product is

$11

A study sponsored by the Food Consumer Safety Board found that consumption of irradiated tomatoes increased the health of laboratory rats. As a result of national press coverage of the report, the demand for irradiated tomatoes increased dramatically. Organic farmers were able to switch from organic production of tomatoes to irradiated production with no additional cost. Assume that the tomato market satisfies all of the assumptions of perfect competition.
If the increased production of irradiated tomatoes caused a rise in the marginal transportation costs of moving irradiated tomatoes to market, the

long-run market supply of irradiated tomatoes would be upward sloping.

A competitive market is in long-run equilibrium. If demand decreases, we can be certain that price will

fall in the short run. All, some, or no firms will shut down, and some of them will exit the industry. Price will then rise to reach the new long-run equilibrium.

In the short run, there are 500 identical firms in a competitive market. The firms do not use any resources that are available in limited quantities, and each of them has the following cost structure. Which of the following is a point on the long-run supply curve?

P=$5, Q=1,500

Suppose a firm operating in a competitive market has the following cost curves. When market price is P7, a profit-maximizing firm's short-run profits can be represented by the area

(P7 - P5) × Q3

Suppose a firm in a competitive market, like the one depicted in panel (a), observes market price rising from P1 to P2. Which of the following could explain this observation?

An increase in market demand from D0 to D1

A firm in a competitive market has the following cost structure. If the market price is $8, how many units of output should the firm produce to maximize profit?

6 units

Suppose a firm operating in a competitive market has the following cost curves. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earn

losses but will remain in business

Suppose a firm operating in a competitive market has the following cost curves. If the market price is $10, what is the firm's short­ run economic profit?

$15

When the market is in long-run equilibrium at point W in panel (b), the firm represented in panel (a) will

have a zero economic profit

The table represents a demand curve faced by a firm in a competitive market. For this firm, the marginal revenue of the 12th unit is

$11

Profit will be maximized by charging a price equal to

P5

A monopolist faces the demand curve above. The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing level of production?

4 units

Patents, copyrights, and trademarks

are examples of government-created monopolies

The average total cost curve for a monopoly firm is depicted by curve

C

If the monopolist sells 8 units of its product, how much total revenue will it receive from the sale?

$112

A profit-maximizing monopolist would incur total costs of

$120

Competitive firms differ from monopolies in which of the following ways?
(i) Competitive firms do not have to worry about the price effect lowering their total revenue.
(ii) Marginal revenue for a competitive firm equals price, while marginal revenue for a monopoly is less than the price it is able to charge.
(iii) Monopolies must lower their price in order to sell more of their product, while competitive firms do not.

(i), (ii), and (iii)

Consider the following demand and cost information for a monopoly. The marginal revenue of the 2nd unit is

$15

For a monopoly firm, the shape and position of the demand curve play a role in determining the
(i) profit-maximizing price.
(ii) shape and position of the marginal-cost curve.
(iii) shape and position of the marginal-revenue curve.

(i) and (iii) only

What is the shape of the monopolist's marginal revenue curve?

a downward-sloping line that lies below the demand curve

A profit-maximizing monopoly's total revenue is equal to

P5 x Q3

Allowing an inventor to have the exclusive rights to market her new invention will lead to
(i) a product that is priced higher than it would be without the exclusive rights.
(ii) desirable behavior in the sense that inventors are encouraged to invent.
(iii) higher profits for the inventor.

(i), (ii), and (iii)

Bob's Butcher Shop is the only place within 100 miles that sells bison burgers. Assuming that Bob is maximizing his profit, which of the following statements is true?

The price of Bob's bison burgers will exceed Bob's marginal cost.

A profit-maximizing monopolist would earn total revenues of

$240

Which of the following statements is true?
(i) When a competitive firm sells an additional unit of output, its revenue increases by an amount less than the price.
(ii) When a monopoly firm sells an additional unit of output, its revenue increases by an amount less than the price.
(iii) Average revenue is the same as price for both competitive and monopoly firms.

(ii) and (iii) only

If the monopolist wants to maximize its revenue, how many units of its product should it sell?

6

A profit-maximizing monopolist would earn profits of

$120

The table shows the demand curve a monopolist faces. The monopolist has total fixed costs of $60 and has a constant marginal cost of $15. What is the profit-maximizing price?

$36

A monopolist can sell 300 units of output for $45 per unit. Alternatively, it can sell 301 units of output for $44.60 per unit. The marginal revenue of the 301st unit of output is

-$75.40

If the monopoly firm is currently producing Q3 units of output, then a decrease in output will necessarily cause profit to

decrease

Suppose most people regard emeralds, rubies, and sapphires as close substitutes for diamonds. Then DeBeers, a large diamond company, has

less market power than it would otherwise have

For a monopoly firm,

price always exceeds marginal revenue

Because monopoly firms do not have to compete with other firms, the outcome in a market with a monopoly is often
A) All of the above are correct.
B) inefficient.
C) not in the best interest of society.
D) one that fails to maximize total economic well-being.

A) All of the above are correct

If the monopoly firm wants to maximize its profit, it should operate at a level of output equal to

Q3

A monopoly firm can sell 150 units of output for $10 per unit. Alternatively, it can sell 151 units of output for $9.98 per unit. The marginal revenue of the 151st unit of output is

$6.98

When a firm operates under conditions of monopoly, its price is

constrained by demand

The marginal revenue curve for a monopoly firm starts at the same point on the vertical axis as the
(i) average revenue curve.
(ii) marginal cost curve.
(iii) demand curve.

(i) and (iii) only

Profit can always be increased by increasing the level of output by one unit if the monopolist is currently operating at
(i) Q1.
(ii) Q2.
(iii) Q3
(iv) Q4.

(i) or (ii) only

Which of the following is not an example of a barrier to entry?

A college student starts a part-time tutoring business.

Because a monopolist is the sole producer in its market, it can necessarily alter the price of its good
(i) without affecting the quantity sold.
(ii) without affecting its average total cost.
(iii) by adjusting the quantity it supplies to the market.

(iii) only

A profit-maximizing monopolist would earn profits of

$120